Unfortunately the franchise industry is self regulated with no independent body really monitoring the activities of the franchise market
There are some very good franchises – unfortunately there are also some very poor franchise opportunities that cost a lot to purchase, do not really give the help and assistance expected, and result in the franchisee struggling to make any significant profit on their investment and effort.
Franchising is an easy and cheap way for owner companies to develop and expand their business idea. The franchisor sells an area to a franchisee who in return receives training and advice on how to run that business. The purchase price can be several thousand £’s and the franchisee usually has to pay a between 5 -10 % of their sales to the franchisor for the period of their relationship.
The Downside of Franchises
Setting up & Sales
- In a lot of cases the franchisee is the person who bears more of the business risk than the franchisor.
- The franchisee spends his money buying the franchise, on stock and equipment and tries to sell his services in a given area agreed with the franchisor.
- The franchisor receives a royalty on all sales irrespective of whether the franchisee is making a profit!
- The franchisor benefits from having motivated self starters, who want to run their own business
- The franchisee is instructed on how to operate and is supplied with some product or brand unique to the franchisor (not the franchisee)
- The generation of customers or sales leads can vary but in most cases the franchisee is responsible for generating their own customers.
- There are exceptions where national advertising is carried out on behalf of the franchise brand.
- Many franchises charge upwards of £25k which is usually far in excess of the total value of the materials, equipment, training and marketing package the franchisee receives.
- Most franchisors expect their franchisees to pay them as much as 10 % from all sales regardless of running costs.
Sales Areas & Contracts
- Franchisors group post codes into distinct business areas and restrict franchisees to each “business area”
- If you want to expand into other areas you may have to buy more post codes.
- The agreement may have a franchise renewal fee at the end of each contract.
- Each time it is renewed the franchisor will issue you with a new agreement that may have different clauses in it – which you have to agree and follow.
- The franchisee rarely has any option to negotiate these new conditions and has to sign or lose the right to continue operating.
- If the franchisee decides not to renew they usually have to stop trading and the franchisor sells their area or takes over the business.
- Agreements may have non negotiable sales growth targets and further investment targets in them.
Pricing & Getting Out
- Pricing strategies tend to focus on sales volume (e.g. lots of sales at low margins) at the expense of profitability.
- High customer numbers results in high operating costs
- The franchisor may tell you to purchases equipment that may not be strictly required in the early stages of your business
- You may have restrictions on which products and materials you can use.
- You may be expected to make regular extra investment on new vehicles, software, uniforms, irrespective if your business requires it at that stage.
- Limited opportunity to sell your business unless you find someone who will accept the terms and conditions the franchisor expects you to operate under.
- Some franchisors may even expect some of the proceeds when you sell your business
- Many franchisors insist on full time commitment and no other business activities.
- There is no doubt that many franchisees benefit from the initial training and support from franchisors that allow them to get started.
The Alternative:
The Lawn & Weed Expert expert is a successful lawn care company, with several years’ sales history (which we invite you to see), numerous operational areas and several thousand customers. Our unique offer means that::
- You'll never have to pay Royalties or subsidies to us or anybody else
- You're not restricted to where you can operate geographically
- Your Start-up costs are a fraction of a Franchise's
- You're in control of Pricing, Strategy, and how you run your business
- You can acheive a first year sales average of £40,000 (based on figures we can show you)
